The California Air Resources Board (ARB) has issued its official Auction Notice for the California Cap-and-Trade Program Greenhouse Gas Allowance Auction on 19 February 2013—the second official auction. (Earlier post.) The February 2013 allowance auction will
offer 12,924,822 2013 current vintage allowances and 9,560,000 year 2016 future vintage allowances for sale.

The number of allowances listed for the Current Auction is the final number of
allowances offered for sale and includes State-owned allowances and allowances
consigned by the electricity distribution utilities.

The February 2013 auction will be conducted using an electronic, internet-based
Auction Platform that bidders use to submit their bid in a single-round, sealed-bid
auction format. Bid quantities can only be submitted in multiples of 1,000 California
GHG allowances.

The first auction in November resulted in the sale of 23,126,110 allowances (2013 Vintage) with a settlement price of $10.09 (auction reserve price was $10.00).

Earlier in December, ARB announced that the American Carbon Registry and the Climate Action Reserve had been formally approved as offset project registries to help evaluate compliance-grade carbon offsets under California’s cap-and-trade program. The Air Resources Board has also accredited specially trained third-party offset verifiers.

[The] announcement marks an important milestone in the progress of California’s climate program. By authorizing real, permanent offsets from farms, forests, and businesses that are not covered by cap-and-trade, we can reduce the costs of compliance with the program and encourage investments in sustainable practices throughout the California economy.

—Air Resources Board Chairman Mary D. Nichols

The Cap-and-Trade Regulation sets an overall limit (cap) on greenhouse gas (GHG) emissions from specified industrial sectors. Maintaining emissions below the cap is achieved through a combination of reduced emissions and retirement of emission permits, comprising allowances and verified offsets. Unused allowances can be traded and offsets can be purchased on ARB-endorsed registries. Offset projects can be designed to enhance removals of GHG on agricultural lands and forestlands or reduce GHG emissions through capture of methane from livestock operations and through destruction of ozone depleting substances.

Carbon offsets reduce greenhouse gas emissions in sectors such as agriculture and forestry that are not included directly under the cap-and-trade regulation. For example, forests can be managed to ensure that they increase the total amount of carbon stored in the trees, thus removing additional carbon dioxide from the atmosphere.

Each offset credit equals one metric ton of carbon dioxide and, if issued by the Air Resources Board, can be used by companies and facilities to comply with the cap-and-trade regulation for up to eight percent (8%) of each covered entity’s compliance obligation. In this sense, they are the equivalent of a California carbon allowance and, like those compliance instruments, can also be freely sold or traded.

To meet the requirements of the cap-and-trade regulation every carbon offset credit must be additional—i.e., over and above any reductions already required by law or regulation. They must also be real, verifiable, quantifiable, enforceable and permanent. The Air Resources Board currently has approved protocols (methods of accounting to measure the number of tons of reductions achieved) for four types of offset projects:

Forestry

Urban forestry

Dairy manure digesters

Destruction of Ozone Depleting Substances

Approved offset project registries are authorized to provide their services under the Air Resources Board compliance protocols. Those services include listing and reviewing projects and issuing registry offset credits which may later be submitted to the Air Resources Board for final evaluation and issuance of Air Resources Board compliance offset credits.

An example of a verifier is SCS Global Services (SCS), which recently was accredited by ARB to provide verification services for carbon offset projects under the Cap-and-Trade Program. SCS has already contracted to conduct several “compliance grade” forest offset project verifications in 2013 and is now ready to commence the verification process on these projects. SCS and its cadre of staff and contract auditors have completed the necessary training and passed the required examinations to conduct verification audits under the California Cap-and-Trade Regulation.